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Revival of Indian economy; RBI data shows expansion in credit growth for first time in 14 months.

Date:

12-01-2018

Subject:

Revival of Indian economy; RBI data shows expansion in credit growth for first time in 14 months

RBI data: For the first time in 14 months, the industrial sector saw an expansion in credit growth in November 2017 over the same period the previous year. Reserve Bank of India has released the data which shows gross bank credit expanded 8.3 per cent in November, and credit off-take by the industry by 1 per cent. The contraction in credit growth to the industry since October 2016 had hit a low of (-)5.2 per cent in February 2017, while the gross bank credit growth stood at 3 per cent in the same month.

According to reports, the credit outstanding to the industry, which stood at Rs 27,30,300 crore in March 2016, had come down to Rs 25,99,100 crore in October 2017 as a result of decline in credit growth numbers and year-on-year contraction since October 2016. In November, it expanded to Rs 26,04,000 crore for the first time since the government announced its demonetisation policy in November 2016. Data show that credit growth to the industry was driven by expansion to sectors such as food processing (9.9%), textiles (4.6%), chemicals (3.2%), engineering (2.4%) and metals (1%). But the infrastructure sector, which accounts for nearly 34 per cent of the credit demand by industries, witnessed a contraction in credit by 2.3 per cent in November. Data further show that while micro and small industries, and large industrial units, saw expansion in credit growth in November, the medium scale industries continued to see a contraction (-8.3% in November 2017).

“The movement is positive and we have also seen reassuring numbers for exports and PMI but it must be noted that the credit growth numbers for the industry come on the back of a weak base, and we can’t say it is a full fledged recovery. We have to wait for data for few more months to reach any conclusion,” said D K Joshi, chief economist, Crisil.

Voicing a similar opinion, D K Pant, chief economist, India Ratings, said, “It is too early to say that the industry is out of the woods. There is some anecdotal evidence that points towards investment green shoot but it is mostly because of the base effect. It, however, shows that stability is returning post-demonetisation and implementation of GST, and industry is looking for investment for their working capital requirement.” Other than industries, the services sector too saw a sharp rise in credit growth in November 2017 at 14 per cent, which is the highest since September 2016, with the exception of a 19.5 per cent growth seen in March 2017. The credit growth for the services sector had slipped to a low of 4 per cent in May 2017 and stood at 7 per cent in September 2017.

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